Download or read book Credit, Liquidity and the Cross Section of Stock Returns written by Rui Zeng and published by . This book was released on 2014 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: I present empirical evidence that the TED spread is a priced risk factor in the cross sectional stock returns. Stocks with higher exposure to the change in the TED spread require higher returns, and the value weighted return difference between the high sensitivity portfolio and the low sensitivity portfolio is a significant 6.6% annually. The TED factor exercises better forecasting ability within the non-crisis periods and big stocks. My result provides further empirical support for Garleanu and Pedersen (2011) margin based asset pricing model, in which margin requirement captures the asset's exposure to the shadow cost of the inter bank borrowing (the TED spread), and stocks with higher exposure require a higher return premium, in addition to their exposures to the conventional systematic risk factors.